Rising Interest Rate Bets Help U.S. Dollar ETF Gain Momentum

The U.S. dollar and currency-related exchange traded fund jumped to their highest level since March as traders raised bets that the Federal Reserve could raise interest rates in December on improved U.S. economic data in recent weeks.

The PowerShares DB U.S. Dollar Index Bullish Fund (NYSEArca: UUP) gained 0.8% Tuesday and was trading at its highest level since early March. UUP tracks the price movement of the U.S. dollar against a basket of currencies, including the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc.

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Meanwhile, the U.S. Dollar Index (DXY), which tracks the USD against a basket of major global currencies, also rose 0.8% to 97.7 mid-Tuesday.

“Recent data on jobs, manufacturing and services growth have shown compelling strength that could green light a U.S. rate hike by the end of the year,” Joe Manimbo, senior market analyst at Western Union Business Solutions, told Reuters.

Investors are waiting for Wednesday’s release of minutes of the latest Federal Reserve monetary policy meeting for any further hints of a December interest rate hike. The Fed funds futures market shows options traders are pricing in a 70% probability the Fed will raise rates in December.

Analysts also argued that the USD has benefited from Democratic presidential nominee Hillary Clinton’s widening lead in opinion polls over rival, Republican candidate Donald Trump.

“To the extent that Mrs. Clinton is seen as the status quo candidate, her victory is likely to create fewer policy uncertainties than Mr. Trump’s and is therefore likely to create fewer possible objections to higher interest rates at the Fed come December’s FOMC meeting,” Omer Esiner, chief market analyst at Commonwealth Foreign Exchange, told Reuters.

Further supporting the U.S. dollar rally, the British pound has plunged to three-decade lows on fears of a so-called hard Brexit after U.K. Prime Minister told the Conservative party conference that Britain would trigger Article 50 – the official legal notification that would begin the exit negotiations with the European Union – “no later than the end of March.”